Armada Hoffler Properties, Inc. (AHH) Q4 2022 - Earnings Call Transcript

Armada Hoffler Properties, Inc. (NYSE:AHH) Q4 2022 Earnings Conference Call February 14, 2023 8:30 AM ET

Company Participants

Chelsea Forrest - Director, Corporate Communications & IR

Lou Haddad - CEO

Matthew Barnes-Smith - CFO

Shawn Tibbetts - COO

Conference Call Participants

Dave Rogers - Baird

Peter Abramowitz - Jefferies

Rob Stevenson - Janney

Camille Bonnel - Bank of America

Chris Sakai - Singular Research

Operator

Good morning, ladies and gentlemen, and invited to the Armada Hoffler Fourth Quarter 2022 Earnings Conference Call. At this time, each lines are successful perceive lone mode. Following the presentation, we volition behaviour a question-and-answer session. [Operator Instructions] This telephone is being recorded today, Tuesday, February 14, 2023.

I would present similar to crook the league implicit to Chelsea Forrest, Director of Corporate Communications and Investor Relations. Please spell ahead.

Chelsea Forrest

Good greeting and convey you for joining Armada Hoffler's 4th fourth and afloat twelvemonth 2022 net league telephone and webcast. On the telephone this morning, successful summation to myself is Lou Haddad, CEO; Matthew Barnes-Smith, CFO and Shawn Tibbetts, COO.

The property merchandise announcing our 4th fourth net on with our net guidance and supplemental bundle were distributed this morning. A replay of this telephone volition beryllium disposable soon aft the decision of the telephone done March 14, 2023. The numbers to entree the replay are provided successful the net property release. For those who perceive to the rebroadcast of this presentation, we punctual you that the remarks made herein are arsenic of today, February 14, 2023, and volition not beryllium updated consequent to this archetypal net call.

During this call, we whitethorn marque guardant looking statements, including statements related to the aboriginal show of our portfolio, our improvement pipeline, the interaction of acquisitions and dispositions, our mezzanine program, our operation business, our liquidity presumption our portfolio show and financing activities, arsenic good arsenic comments connected our guidance and outlook. Listeners are cautioned that immoderate forward-looking statements are based upon management's beliefs, assumptions and expectations taking into relationship accusation that is presently available. These beliefs, assumptions and expectations whitethorn alteration arsenic a effect of imaginable events oregon factors, not each of which are known and galore which are hard to foretell and mostly beyond our control. These risks and uncertainties tin origin existent results to disagree materially from our existent expectations and we counsel listeners to reappraisal the forward-looking statements disclosure successful our property merchandise that we distributed this greeting and the hazard factors disclosed successful the documents we person filed with oregon furnished to the SEC.

We volition besides sermon non GAAP fiscal measures, including but not constricted to FFO and normalized FFO. Definitions of these non-GAAP measures, arsenic good arsenic reconciliations to the astir comparable GAAP measures, are included successful the quarterly supplemental package, which is disposable connected our website astatine armadahoffler.com.

We volition commencement the telephone contiguous by discussing our 2023 guidance. At this time, I'd similar to gully your attraction to our 2023 guidance presumption made disposable connected our website.

I'll present crook the telephone implicit to Lou.

Lou Haddad

Thanks, Chelsea. Good morning, everyone, and convey you for joining america today. In summation to analysts and investors, determination are galore of the Armada Hoffler household and associated task partners connected the call. On behalf of our Founder and Chairman, Dan Hoffler, the Board of Directors and Executive Management, we sincerely convey you for being a portion of our team.

Through your hard work, dedication and expertise we person brought astir an accomplishment that I antecedently thought would lone beryllium attained a fewer much years successful the future. The concern people recognition standing assigned to america by DBRS Morningstar represents an accomplishment galore years successful the making. We judge this standing to beryllium a validation of our diversified concern model, Class-A portfolio, multi decennary way grounds and liable carnal management. This coagulated BBB designation gives america entree to further superior sources and investors that lone transact with concern people companies. I promote each who travel our institution to work the standing report, which tin beryllium recovered connected the DBRS MorningStar website. It gives a thorough and unbiased appraisal of Armada Hoffler.

As you person astir apt already seen, this greeting we released grounds net for the 4th quarter. The $0.35 of normalized FFO per stock acold exceeds erstwhile guidance. The superior drivers of this quarter's outperformance were accrued NOI from bureau properties, robust aforesaid store NOI and the aboriginal payoff of a preferred equity plus which triggered a minimum involvement payment. This completes a afloat twelvemonth that saw america turn net per stock by 13% implicit 2021. The institution is evidently firing connected each cylinders.

Today, I volition absorption my comments connected our 2023 guidance presentation, which was released this greeting and tin beryllium recovered connected our Investor Relations website. Later successful the call, Matt volition springiness further details connected the 4th and our fiscal metrics. Shawn volition wrapper up our prepared remarks with comments connected the existent presumption of ongoing operations and the improvement pipeline, arsenic good arsenic portfolio highlights.

Turning to leafage 3 of our guidance package. You'll spot that we are forecasting a important summation successful spot NOI, resulting from integrated maturation successful our aforesaid store portfolio, the lease up and stabilization of precocious developed delivered improvement projects and anticipated acquisitions. We besides expect different grounds twelvemonth successful operation arsenic we proceed to enactment done implicit $600 cardinal successful third-party contracts implicit the adjacent mates of years.

This year, we'll recognize the interaction of the bully enactment Matt and our concern squad person done to further determination the equilibrium expanse towards much unsecured longer word fixed complaint indebtedness and our planned simplification of the mezzanine program. All these factors combined could effect successful a steadfast 2.5% summation successful bottommost enactment per stock earnings.

Regarding our people of $100 cardinal to $200 cardinal of acquisitions, we person identified a fewer imaginable disconnected marketplace accretive opportunities with a imaginable constituent of OP Unit equity. All told, we are pleased to proceed the upward trajectory of our net successful anticipation of further maturation arsenic our improvement projects present and stabilize.

Turning to leafage four, you'll spot an illustration of this trajectory. This illustration shows that the institution has been a exemplary of consistency coming retired of the pandemic and that we expect that dependable maturation to proceed for the foreseeable future. As the portfolio income continues to climb, you spot that mezzanine income decreases arsenic we yet stabilize the programme astatine $80 cardinal level that we established arsenic a people immoderate clip ago. Construction interest income is expected to yet instrumentality to the humanities scope of $4 cardinal to $7 cardinal aft a fewer years of elevated profits. Please enactment the continuous emergence successful portfolio NOI contempt the disposition of implicit $300 cardinal of noncore assets implicit the past twelvemonth oregon so.

Turning to leafage five. The array astatine the apical reiterates the expected melodramatic summation successful NOI and the pastry charts exemplify the assorted sectors successful our spot portfolio. While each sectors volition proceed to turn connected an implicit basis, we expect to proceed rebalancing the portfolio. We task that retail volition proceed to beryllium our largest sector, but little of the full connected a percent basis. Multifamily volition turn the fastest, simply by virtuousness of developments successful the pipeline and a afloat twelvemonth of the recently stabilized apartment. We expect the bureau percent to stay comparatively unchangeable with the summation of the bureau information of Southern Post arsenic good arsenic caller tenants coming online successful our existing portfolio. Our existent forecast contemplates exiting the T. Rowe Price associated task upon completion.

Page six summarizes the accordant and sustained maturation our squad has already achieved and the aboriginal maturation that we expect to present this year. Whether it's NOI, EBITDA oregon normalized FFO, each of these important fiscal measures has incrementally accrued and is projected to turn implicit the 3 twelvemonth play measured here. Perhaps arsenic important, we person each crushed to judge that this illustration inclusive of the dividend complaint volition proceed the inclination aft we adhd 2024 to the data. The underlying fundamentals of our portfolio, occupancy, renewal spreads, weighted mean lease presumption tenant diversification and recognition prime are stronger than ever, producing steadfast NOI maturation successful each of our plus classes and grounds bottommost enactment per stock earnings.

We recognize this runs against the drumbeat of quality successful immoderate existent property sectors, particularly office, peculiarly if your absorption is connected gateway markets. On the contrary, we are seeing grounds request and consequently person the quality to thrust rental rates crossed our properties and submarkets. Given the economical past of resilience this portfolio has demonstrated, we spot nary crushed for this to change. The biggest situation we are facing successful accommodating tenant request and enlargement successful a portfolio adhd capacity.

In short, to radical america unneurotic with the bureau REITs facing large structural issues is to disregard the strength, prime and show of our bureau properties. And adjacent much importantly, this inaccurate characterization would place the different 70% of our portfolio and interest income sources, each of which are operating astatine grounds levels of profitability.

Now implicit to Matt.

Matthew Barnes-Smith

Good morning, and convey you, Lou. What a year, I'm highly arrogant to beryllium portion of the Armada Hoffler squad that continues to outperform each expectations. As Lou indicated, for the last 4th of 2022, we reported FFO of $0.33 per diluted stock and normalized FFO of $0.35 per diluted share. For the 4th consecutive quarter, we produced a robust acceptable of operating metrics crossed our portfolio achieving precisely what we committed to our shareholders.

For the afloat 2022 fiscal year, we achieved FFO of $1.21 per diluted stock and normalized FFO of $1.22 per diluted share, outperforming our archetypal guidance by 8% and outperforming our pre pandemic net precocious with materially little reliance connected interest income. Shawn volition sermon our preferred equity and interest income strategy aboriginal connected the telephone reporting connected our operational show and providing further insight.

Last quarter, I spoke astatine magnitude regarding our equilibrium expanse translation towards agelong word fixed complaint unsecured indebtedness and I'm pleased to study that we've made beardown advancement implicit the past fewer months continuing to execute our fiscal strategy. As you person seen successful the property merchandise from aboriginal December partnering with 1 of our preferred lenders, we closed connected a $100 cardinal unsecured word indebtedness mirroring the presumption and conditions of our superior recognition facility. This SOFR positive 130 ground constituent mode was instantly swapped astatine an all-in complaint of 4.8% and we utilized the funds to wage disconnected secured debt. The word indebtedness installation has different $100 cardinal accordion diagnostic that we volition look to utilize this twelvemonth to person our remaining secured operation indebtedness erstwhile the applicable projects from our improvement pipeline person reached stabilization.

Taking vantage of the favorable derivatives marketplace successful aboriginal December, we besides executed different swap for the notional magnitude of $100 cardinal astatine the all-in complaint of 4.73%. This swap was placed connected the word indebtedness funds that we recast backmost successful August replacing the $100 cardinal headdress that expired earlier this month. As we modulation the equilibrium sheet, we'll endeavor to support our adaptable complaint indebtedness is 100% hedged. For the 4th fourth of 2022, the ratio of our stabilized portfolio indebtedness to stabilize portfolio adjusted EBITDA remained accordant astatine 5.3 times. Our stabilized leverage scope betwixt 5 times to 5.5 times is simply a effect of the continued implementation of our overarching financing program deploying our superior successful the astir optimized ways.

As Lou noted earlier, that financing attack arsenic portion of our overarching diversified concern strategy was rewarded this period with a BBB recognition rating, providing broader entree to superior markets astatine a little outgo of funds and the accidental to further our equilibrium expanse transformation. The squad worked exceptionally hard implicit the past twelvemonth to guarantee that we were good positioned for this standing and I'd similar to instrumentality this accidental to convey everybody astatine Armada Hoffler who was involved.

DBRS Morningstar identified a fig of spot supporting our concern people rating, including our marketplace starring positions successful the Mid Atlantic and trophy assets successful Baltimore, a precocious grade of diversification crossed plus classes wrong our commercialized tenant basal that mitigates vulnerability to currency travel volatility and our humanities EBITDA involvement sum that has been beardown for respective years. Whilst we're successful nary hurry to participate the backstage placement markets, we volition show marketplace conditions and look to transact erstwhile the situation is favorable.

In the 4th quarter, our weighted mean outgo of indebtedness remains debased astatine 3.6% illustrating the occurrence successful maintaining that our indebtedness is 100% fixed oregon hedged and reducing the hazard of uncertainty successful this rising involvement complaint economical cycle. Assuming that guardant output curve stays reasonably accordant with the existent projection, our anticipation is that our weighted mean outgo of indebtedness volition beryllium beneath 4% for 2023 and 2024. As mentioned past quarter, we refinanced the Gainesville Apartments with a $30 cardinal indebtedness priced importantly beneath the operation note. This means that we bash not person immoderate indebtedness maturities successful 2023 and a tiny magnitude of secured indebtedness maturing successful 2024 volition beryllium paid disconnected astatine maturity.

As you tin tell, the execution of the equilibrium expanse translation is going exceptionally well. We person beardown leverage metrics, competitory with our peers, a debased outgo of indebtedness and nary maturities successful the adjacent 2 years. That coupled with maintaining our beardown liquid presumption means we are intentionally structured for our concern team's opportunistic acquisitions, arsenic Lou mentioned successful our guidance slides, acceptable to enactment our projected concern maturation good into the adjacent 24 months.

I volition present walk implicit to Shawn for immoderate operational highlights.

Shawn Tibbetts

Thank you, Matt. As Lou indicated, the company's 2022 show was the strongest crossed the committee from a KPI standpoint successful its 43 twelvemonth history. That said, we are present focused connected 2023 targets and the teams astatine Armada Hoffler stay hyper focused connected execution and operational excellence to guarantee that the affirmative inclination continues and that worth instauration remains apical of mind. We judge that best-in-class execution passim the portfolio, harmless and reliable operation services, combined with seamless execution of precocious prime improvement projects volition proceed to make sustained shareholder worth for years to come. Please notation to the supplemental bundle to reappraisal our operating portfolio highlights.

I would similar to telephone retired a fewer of the noteworthy operational metrics. 2022 afloat twelvemonth aforesaid store NOI for the portfolio was 5.6% connected a GAAP basis, and 6.7% connected a currency basis, with multifamily coming successful astatine 10.2% connected a currency basis. Full twelvemonth 2022 releasing spreads connected the commercialized portfolio were affirmative 8.4% connected a GAAP ground and 2.9% connected a currency basis.

As you tin spot from the performance, our plus absorption squad is highly diligent successful execution of our operations. Our squad remains intimate with the wide show of these assets, arsenic good arsenic the spot absorption teams that enactment arsenic an hold of our management. This focused attack enables our squad to not lone respond to trends and issues astatine the plus level, but besides to forecast and forestall issues that would different impact NOI astatine the property. One illustration of this diligence is the continued refinement of our station COVID epoch commercialized tenant ticker list. This process is simply a utile indicator focused connected our tenants who are oregon who whitethorn beryllium perchance astatine hazard owed to assorted economical factors successful the market. Two of the higher illustration tenants inhabiting the ticker database are Bed Bath & Beyond and Regal Cinemas.

Bed Bath & Beyond has been a focal constituent fixed caller fiscal challenges. However, neither of the 2 stores successful our portfolio are targeted for closure. As a effect of the spot of the stores successful our portfolio, we person elected not to reserve against them astatine this time. Following caller quality connected Bed Bath & Beyond, the Patterson determination successful Durham, North Carolina has received an unsolicited enquiry from a fashionable recognition tenant who would similar to capable the abstraction should it beryllium vacated. In our Virginia Beach location, the store is simply a beardown performer amongst its peers. That said, we anticipation the abstraction becomes disposable successful bid to instrumentality vantage of our agelong contemplated redevelopment plans by adding flat units astatine Town Center.

We besides person 2 Regal Cinema locations wrong the portfolio, The Harrisonburg determination is simply a beardown performer. However, sits connected astir 10 acres that represents a premier redevelopment opportunity. In Virginia Beach, the Regal Cinemas is adjacent to the aforementioned Bed Bath & Beyond tract and is perfect for redevelopment into multifamily assemblage astatine Town Center. We are not acrophobic astir immoderate different properties connected the ticker database fixed the spot of their locations.

In presumption of office, we stay highly leased astatine 96.7% with a precocious prime roster of tenants. As DBRS Morningstar precocious stated, the bureau occupancy complaint continues to stay unchangeable successful the precocious 90% scope and the institution is facing issues with tenant enlargement petition fixed the deficiency of disposable space. We are moving with 1 precocious recognition tenant who we expect to instrumentality abstraction astatine immoderate constituent successful 2023. This volition effect successful yet different precocious prime planetary steadfast located astatine Town Center successful Virginia Beach. Our residential portfolio continues to thrive. We're present seeing rent maturation mean to a azygous digit gait arsenic we had antecedently forecasted and underwritten. As a effect of our blimpish approach, are good positioned successful presumption of portfolio rent maturation and yields for multifamily units presently successful the improvement pipeline.

Our portfolio is resilient and its divers constitution continues to supply stableness and predictability successful the company's wide performance. The diverseness tin beryllium characterized successful a mates of ways. First, we person robust diverseness successful spot type, which is surely beneficial implicit time. Secondly, arsenic DBRS Morningstar states, the plus prime of our multifamily portfolio and the prime and diversification of our commercialized tenant basal enactment a precocious grade of recognition rating. Additionally, and much apt the lawsuit during times wherever marketplace conditions summation competition, our mixed usage assets outperformed the competitory set. These competitory advantages springiness america the quality to stay the beneficiary of the formation to prime and support dependable net maturation implicit time.

Our operation and improvement projects are progressing according to docket arsenic we attack the outpouring months. We person important worth instauration underway and astir importantly the projects are being executed successful a mode that is accordant with the underwriting. As we reported past quarter, our Gainesville task slightest up successful grounds clip and is present operating successful a stabilized state. We couldn't beryllium happier with the show of the plus developed successful conjunction with our partners astatine Terwilliger Pappas.

Our Chronicle Mill plus successful Belmont, North Carolina continues to outperform expectations, some successful the signifier of rents and lease up schedule. This unsocial rehabilitation task has been a resounding occurrence and was implicit 93% leased astatine the extremity of 4th 4 2022 with operation being materially implicit connected the site. A highly anticipated Southern Post plus successful Roswell, Georgia is proceeding arsenic planned. The mixed usage task volition go the trophy plus successful the submarket with precocious barriers to entry.

Construction and T. Rowe Price's planetary office is good underway, connected docket and proceeding arsenic planned. This task is unsocial arsenic it is situated adjacent to our Wills Wharf plus and adjacent to our Constellation assets. We are champion positioned to conception and make this task fixed our knowing and familiarity with the Harbor Point Market and heavy acquisition constructing a important information of the waterfront successful Baltimore. We are excited arsenic this gathering is coming to fruition. This physique to suit task is expected to execute archetypal occupancy and simultaneous stabilization successful the 3rd 4th of 2024.

Next door, operation of the allied apartments astatine Harbor Point is besides good underway. We are bullish connected this task fixed our cognition of the flat submarket and its determination adjacent to our trophy 1405 Point Street multifamily asset. This task is connected docket and similar T. Rowe Price is besides expected to beryllium acceptable for archetypal occupancy successful the 3rd 4th of 2024. Our partners astatine Terwilliger Pappas repaid the full Solis Nexton indebtedness equilibrium connected the past time of 2022, resulting successful a 30% instrumentality connected concern successful little than 2 years. This is simply a large illustration of the types of preferred equity investments we look for.

Multifamily flat projects successful increasing markets successful the southeast had a manageable concern size with precedence successful the equity stack important dispersed implicit basis, each of which virtually assures our instrumentality and creates a existent little hazard higher instrumentality opportunity. Solis City Park successful Charlotte and Gainesville 2 successful Gainesville Georgia are besides preferred equity arrangements with Terwilliger Pappas. Both projects are good underway with archetypal occupancy expected successful the 3rd 4th of 2023 and the 2nd 4th of 2024, respectively. As with the remainder of our preferred equity portfolio, we would emotion to ain 1 of these assets if the accidental arises.

The Interlock developed by our partners astatine S.J. Collins continues to execute good astatine 90% occupancy. The mixed usage plus located astatine Main and Main successful West Midtown Atlanta is expected to commercialized for a steadfast profit. As Lou mentioned earlier successful the call, we mean to strategically get accretive assets successful 2023. The Interlock is surely a imaginable candidate.

We are intimately managing the interest income information of our business, some successful operation and preferred equity. From a operation perspective, our income has accrued temporarily fixed the unthinkable accidental to conception successful concern with T. Rowe Price, their planetary headquarters. The acquisition of our absorption team, combined with the absorption connected shareholder worth instauration is simply a cardinal constituent driving the occurrence astatine Armada Hoffler. These [indiscernible] objectives are embedded arsenic a effect of the important ownership involvement held by our absorption team. This alignment yet results successful communal involvement with our shareholder basal and are truthful appropriately guided successful each 1 of our concern decisions.

The Armada Hoffler squad continues to transcend expectations, particularly arsenic Lou mentioned, outperforming the guidance during each 4th of this past year. I would similar to accidental convey you to our unthinkable squad members passim the enactment for performing astatine the highest levels. We look guardant to an progressively occurrence afloat twelvemonth successful 2023.

I volition present crook the telephone backmost implicit to the relation for questions.

Question-and-Answer Session

Operator

Thank you, sir. Ladies and gentlemen, we volition present statesman the question-and-answer session. [Operator Instructions] Your archetypal question comes from Dave Rogers of Baird. Please spell ahead.

Dave Rogers

Yes. Good morning, everybody, and Congratulations connected the indebtedness rating. I cognize you've been moving connected that for a while. Maybe commencement with Lou and Shawn with respect to the acquisition pipeline and the OP units you'd privation to use. Couple of thoughts determination oregon questions. First, tin you springiness america a small spot much item possibly connected what you're seeing? Is this much distressed retired of the backstage side, much accepted relationships that you had, would that fig that you gave see Interlock? And possibly the 3rd question connected that would conscionable be, arsenic you deliberation astir benignant of deploying the equity there, is determination different root of capital, either assumed indebtedness oregon immoderate different constituent that would benignant of capable successful the blank for us?

Lou Haddad

Thanks, Dave, and bully morning. So arsenic I mentioned antecedently successful the call, we've identified a fewer opportunities that fundamentally are from -- travel from semipermanent relationships folks that ain properties that we'd beryllium precise funny successful acquiring, again, off-market and astatine the close fig with the accidental to summation NOI.

As Shawn mentioned, the Interlock is simply a possibility, arsenic I've said for respective quarters, if determination is an accidental to transact connected that astatine a discount that would beryllium one. There are a fewer others. Obviously, we don't privation to spell excessively acold into peculiar names there. But it's the benignant of happening that you've seen america bash clip and clip again implicit the years utilizing OP Unit prices astatine premium levels for properties that would beryllium instantly accretive. We enactment that wide scope successful determination due to the fact that we're not definite who's really going to conscionable our criteria.

As acold arsenic methods of financing, arsenic Matt mentioned, we're astatine oregon adjacent an all-time precocious connected liquidity. We're besides looking to deploy OP Units. And obviously, determination could beryllium immoderate operation debt, arsenic good arsenic the backstage placement marketplace erstwhile the clip is right. Anything other there, Dave? Hello?

Operator

My apologies. Our past caller has been removed from the queue. Your adjacent question volition travel from Peter Abramovitz of Jefferies. Please spell ahead.

Peter Abramowitz

Yes. Thank you. I conscionable wanted to ask, successful presumption of the maturation trajectory for 2023, that's implied successful the guidance. Could you springiness a small spot much item connected what's benignant of assumed successful presumption of same-store growth, I would imagine, it's astir apt level oregon antagonistic connected bureau fixed the determination out, but affirmative elsewhere. But conscionable immoderate much colour you could springiness astir that?

Lou Haddad

Yes. Good morning, Peter. And I'm not definite wherever you're picking up the negative. Our projection is that, bureau volition proceed to beryllium affirmative connected a same-store basis. I'm not definite there's a determination out, but there's already a determination successful beyond that arsenic good arsenic important maturation crossed the sector. So bottommost enactment is, each sectors are forecasted to beryllium affirmative successful same-store growth. We deliberation that, arsenic Shawn mentioned, multifamily is going to mean into the debased azygous digits. So it's humanities range. Retail is going to proceed to outperform, arsenic good office. And past the biggest portion of that NOI maturation is simply a afloat twelvemonth of the 2 recently stabilized flat properties that we brought online past year. And lastly, the stabilization of Wills Wharf, which again volition person a afloat twelvemonth bully clip around.

Peter Abramowitz

Okay, got it. And what's the timing of the leases that you person successful spot to backfill the [JHU] (ph) medicine determination up?

Shawn Tibbetts

Morgan Stanley?

Lou Haddad

Yes. That's being backfilled by Morgan Stanley. And I deliberation it doesn't travel online until the archetypal of the year. We tin get that reply for you. Do you person that Shawn?

Shawn Tibbetts

Yes. Rent commencement astatine the opening of 25, truthful January 25. And we'll get you a small much item connected that. But yes, the rent commencement dates 1/1/25. So that coincides good with the JHU expiration.

Peter Abramowitz

Got it.

Lou Haddad

Yes, I deliberation that wherever you're headed, Pete, if there's a spread there, but it's wholly washed implicit by the summation successful NOI from the different tenants moving successful arsenic good arsenic the remainder of the bureau portfolio.

Peter Abramowitz

Okay. Makes sense. And past conscionable successful general, tin you speech astir backstage existent property markets immoderate signs of things benignant of thawing retired determination and convergence and much enactment betwixt purchaser and seller expectations arsenic good arsenic the financing side?

Lou Haddad

Yes. I deliberation successful presumption of acquisitions, dispositions and the like, I deliberation radical are inactive searching for what existent headdress rates are. We don't deliberation that's truly going to settee retired until aboriginal successful the twelvemonth hopefully. So terms find is an issue. That's why, frankly, we're not funny successful looking astatine thing that's retired connected the market, but are hoping to transact privately with adjacent relationships that we already have.

In presumption of financing, I deliberation everybody is of the aforesaid mind. Banks are a spot much cautious astir deploying superior crossed each spot types. Our longtime partners successful the multifamily broadside are seeing that operation loans are present angling towards lone 50%, whereas everybody knows a fewer abbreviated years ago, we were talking 75% and 80%. So evidently the request for equity is much than ever. And we're getting galore much opportunities and we perchance tin transact on. And truthful we're fundamentally successful a presumption successful cherry prime the close assets that with imaginable ownership, either connected mezzanine, preferred equity oregon crushed up basis.

Peter Abramowitz

Got it. That's each from me. Thank you.

Operator

Your adjacent question comes from Rob Stevenson of Janney. Please spell ahead.

Rob Stevenson

Good morning, guys. Lou, I deliberation successful your comments, you indicated that you expected to exit the T. Rowe Price JV upon completion. Is that a 2025 transaction for you guys?

Lou Haddad

Well, the spot -- they'll beryllium occupying successful the 3rd 4th of 2024. So we person to look astatine marketplace conditions, whether that's going to beryllium a time 1 disposition oregon clasp until aboriginal 2025. And of course, you've got a important selling effort arsenic well. And Rob, I conscionable privation to marque definite it's clear. That's our existent thinking. And we emotion the venture. We emotion the building. Obviously, we're going to ain everything astir it. We're conscionable a small acrophobic astir attraction arsenic good arsenic we'd emotion to get that superior backmost and redeploy it. Again, assuming that headdress rates settee retired wherever trophy gathering tin transact astatine a tenable level.

Rob Stevenson

Okay. And past I deliberation you and Shawn some talked a small spot astir redevelopment. Can you speech astir what the benignant of near-term redevelopment plans are, particularly successful the portfolio, particularly if you don't get the Bed Bath oregon the Regal worldly backmost successful the adjacent term? Where other is determination opportunities for you guys? And erstwhile are those benignant of -- erstwhile is the clip framework for commencement and/or completion of the opportunities that you person successful the portfolio today?

Lou Haddad

Thanks, Dave. I'll fto Shawn reply it much specifically. But arsenic acold arsenic redevelopment, those are the lone properties that we person that we'd beryllium looking to instrumentality down and alteration uses. And we're, frankly, anxious to benignant of sitting successful the cater seat. We're selecting a ton of rent close now. But astatine the aforesaid time, agelong term, we'd emotion to spot multifamily successful some of those locations. With respect to ground-up development, Shawn, bash you privation to -- you're looking astatine an atrocious batch of stuff.

Shawn Tibbetts

Sure. Yes, I deliberation there's nary shortage of opportunities retired there, arsenic you would imagine. And truthful we're seeing a batch of woody flow. To Lou's constituent backmost connected the redevelopment, we are blessed to cod rent and ticker operation prices benignant of stabilize oregon travel down. That helps, obviously, the output and helps our concern case. In presumption of ground-up development, present successful Town Center, we have, arsenic you know, Rob, an accidental for a tract present amusement the accidental arises to make a mixed-use building. We've been calling that parcel our block. In Baltimore arsenic well, we person the accidental to -- if we privation to elite to physique much multifamily units consequent to the Allied units that are determination contiguous are being built today.

Our partners crossed the spectrum proceed to bring deals. I mean we looked astatine 3 deals past week successful the multifamily space. So we're seeing beardown woody travel there. We conscionable -- we're mounting -- we've been precise diligent and discerning astir which opportunities to propulsion the trigger on. So I deliberation from our perspective, yes, determination are redevelopment opportunities, but astir apt successful the shorter term, determination are existent ground-up improvement opportunities that marque much consciousness for us, assuming that the rent continues to travel in.

Rob Stevenson

Okay. And then, Matt, thing of enactment to the cadence of 2023 earnings. I deliberation the guidance averages retired to a small implicit $0.31 a quarter. Are determination thing that's going to disrupt that and either propulsion the quarterly progression up oregon down meaningfully successful circumstantial quarters astatine this point?

Matthew Barnes-Smith

Today – Good morning, Rob. Today successful our guidance wherever the standards you were dispersed it astir even, determination is simply a imaginable accidental for 1 of our preferred equity deals similar Solis Nexton came aboriginal successful 2022, perchance Solis City Park could beryllium sold and travel aboriginal successful 2023, but we person not enactment that successful the basal lawsuit of guidance, that would beryllium perchance upside. But yes, we consciousness that, yes, it volition beryllium reasonably evenly dispersed passim the quarters, and we volition spot benignant of arsenic Lou and Shawn talked about, the imaginable acquisitions that we've placed successful guidance, we'll spot what they benignant of materializing the timing connected that arsenic we enactment done the year.

Rob Stevenson

Okay. And the $13 cardinal of mezz preferred successful the guidance, is that conscionable the 3 existing investments? Or does that contemplate an further concern oregon 2 passim the year?

Lou Haddad

That's conscionable the 3 that are progressive close now.

Rob Stevenson

Okay. So thing successful summation to that connected a nett ground would propulsion guidance up astatine that point?

Matthew Barnes-Smith

Yes. Rob, determination is 1 further mezzanine preferred equity woody with our preferred partners TP, Solis [indiscernible] that is successful the model. Hopefully, that volition adjacent successful the archetypal 4th of this twelvemonth to regenerate the work premix and the transacted early.

Rob Stevenson

Okay. That's helpful. Thank you precise much.

Operator

Your adjacent question comes from Dave Rogers astatine Baird. Please spell ahead.

Dave Rogers

Hey, atrocious astir earlier, but acknowledgment for the reply to that archetypal question. Follow-up for me, Lou, connected the operation broadside of the business, added rather a spot of the backlog successful the 4th quarter. Curious astir conscionable what you're seeing benignant of successful operation overall, including possibly immoderate outgo increases that you're inactive seeing. But I conjecture with respect to the backlog, are you conscionable seeing an acceleration of improvement whether it's conscionable unsocial to Armada Hoffler, truly trying to get a consciousness for the competitory scenery possibly that you're facing arsenic well?

Lou Haddad

Dave, I deliberation to reply your past question first, I deliberation it's reasonably unsocial to us. We've got these agelong word relationships that are precise progressive close present and we're the beneficiary of that and we'll proceed to beryllium truthful for the adjacent mates of years. In presumption of pricing, things person moderated. We're inactive putting escalations successful contracts, but not astir to the grade that we were astatine this clip past twelvemonth and done the spring. We're not truly seeing and I don't deliberation anybody is expecting that there's going to beryllium immoderate important decrease. The commodity prices person travel down significantly, but that's been offset mostly by labour costs, arsenic good arsenic a shortage of precocious prime subcontractors.

Dave Rogers

Okay, great. Thanks for the follow-up.

Operator

Your adjacent question comes from Camille Bonnel of Bank of America. Please spell ahead.

Camille Bonnel

Hi, bully morning, and bully occupation connected the concern people recognition rating. It sounds similar from this telephone you person a fig of imaginable concern opportunities this year. Can you conscionable elaborate a small spot much astir the plan, sources and uses of superior conscionable successful the discourse of your mean word leverage target?

Lou Haddad

Sure. Camille, close now, we've got a fig of sources of equity and we're staring astatine a batch of opportunities to prime up immoderate truly bully properties connected an disconnected marketplace basis. And similar I mentioned before, utilizing the company's banal astatine a premium price. So we're excited to get that done. Matt's got a batch of arrows successful the quiver and, of course, we've present added the backstage placement market, positive we person the quality to grow our recognition enactment done an accordion diagnostic arsenic good arsenic liquidity we person connected equilibrium sheet. And truthful we're feeling that with acquisitions we volition enactment successful that scope that Matt has mentioned. He's going to footwear maine nether the array if I accidental thing different than that. But we besides -- lastly, I privation to marque definite everybody understands, we sold implicit $300 cardinal of noncore assets successful the past 12 oregon 14 months. We inactive person noncore assets that we tin usage if indispensable for a acceptable root of capital. Plus I mentioned the T. Rowe Price exit is simply a potentiality. So there's a fig of antithetic ways we tin go, but our anticipation is that we're not going to get retired of that scope that Matt had mentioned.

Also important to enactment is that, it is successful our guidance that the Interlock volition transact irrespective of who buys it, that $80 cardinal immoderate volition not beryllium outstanding the extremity of the twelvemonth is our forecast.

Camille Bonnel

Thank you. Appreciate the colour there. And galore of my questions person been answered already. So conscionable 1 follow-up arsenic I wanted to marque definite I caught your earlier comments connected the aforesaid store outlook. And you're expecting NOI to summation adjacent year. So are you saying your expectations for occupancy volition stay affirmative oregon amended successful 2023 adjacent factoring for immoderate chartless determination outs successful your bureau oregon retail portfolio?

Lou Haddad

Sure. Well, I recognize betterment is relative. We're starting from a basal of 98% occupied. So there's not a batch of other abstraction to lease. As Shawn mentioned, we're fundamentally trying to shoehorn 1 much tenant into Town Center present successful our bureau space, a planetary enactment arsenic well. Our anticipation is that, we're going to enactment astatine oregon adjacent oregon somewhat supra that 98% level successful bureau and retail. We are projecting that multifamily volition mean again backmost to humanities norms of being successful the mid-90s with azygous digit increases arsenic opposed to what we've each seen successful the past mates of years.

Camille Bonnel

Okay. Thank you.

Operator

Your adjacent question comes from Chris Sakai of Singular Research. Please spell ahead.

Chris Sakai

Hi, bully morning. Can you speech astir the main drivers for the normalized funds from operations maturation and guidance?

Lou Haddad

Yes. I deliberation if you look astatine the guidance package, the main drivers are truly twofold. On leafage 3 of the guidance, the guidance deck. Portfolio NOI is the biggest summation and that, again, is fundamentally 2 factors: 1 being same-store income being up crossed the committee successful each of our sectors arsenic good arsenic a afloat twelvemonth of stabilized -- recently stabilized properties which obviously, connected a year-over-year basis, gives a beauteous important boost. We're besides forecasting a beauteous important summation successful operation income based connected that $600 cardinal backlog that we mentioned. Our guys -- I'll instrumentality a 2nd to accidental our guys are doing a phenomenal job. You tin imagine, we fundamentally doubled our humanities backlog astatine a batch of ample analyzable projects, and they're moving afloat retired and doing a large occupation for us.

And lastly, the moderating effect of some of those connected the negative, if you will, broadside is that we're projecting involvement income to spell down from 2022 levels. As I mentioned, arsenic portion of our pre-program to alteration our reliance connected nett interest income and usage much of our superior for our ain portfolio. And enactment it each together, it's a beauteous steadfast increase.

Chris Sakai

Okay. All right. Thanks for that. I accidental this question is for Matt. For 2023, however should we beryllium looking astatine rental expenses? Should it beryllium astir the aforesaid oregon are expanding from existent levels?

Matthew Barnes-Smith

Yes, bully morning, Chris. We judge that our margins connected the NOI volition beryllium reasonably accordant with what we've seen successful 2022. So we volition spot an uptick successful rental expenses. But arsenic NOI is growing, that volition beryllium benignant of contra by the summation successful rental revenue.

Chris Sakai

Okay. Thanks for those answers.

Matthew Barnes-Smith

Yes. Chris, it's truthful worthy noting that successful the commercialized broadside of the business, a information of those expenses are besides reimbursable oregon walk done paid for by our tenants.

Chris Sakai

Okay. Thanks.

Operator

Ladies and gentlemen, astatine this time, determination are nary further questions. So I volition crook the league backmost to Lou Haddad for immoderate closing remarks.

Lou Haddad

Thanks for each your clip and attraction this morning. And we're arrogant of our results and I admit you're funny successful the institution and look guardant to further announcements coming soon. Thank you.

Operator

Ladies and gentlemen, this does reason your league telephone for this morning. We would similar to convey you each for participating. And inquire you to delight disconnect your lines.